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Tax Law Blog

Delinquent tax filers and payers advised to take action

Some people are by nature procrastinators. Others have mastered the art of avoidance or plain old ignoring the problem in hopes it will just goes away. In most cases, however, these tactics are not successful. This is especially the case when dealing with the IRS and matters related to filing and paying one's taxes.

While it's tempting to simply ignore the communications embossed with the official IRS seal, doing so doesn’t erase the fact that the IRS knows you owe them money. Delinquent tax filers and payers should do themselves a favor and simply face the music and deal with their tax problems sooner rather than later. The IRS has a long memory and a systematic approach to dealing with delinquent taxpayers which may include the garnishment of wages, liens and even criminal tax charges.

 

When it comes to reporting foreign assets, actions speak louder than words

We've previously provided information related to some of the new IRS requirements concerning reporting the existence of foreign accounts and assets. We also discussed how individuals who fail to comply with these new regulations can own up to and remedy their mistakes by contacting the IRS and stating whether their errors were willful or non-willful. While the preferred, and less expensive, route is to assert that non-compliance with or failure to file a Report of Foreign Bank and Financial accounts was non-willful, or innocent, in nature; proving such may be more difficult than one anticipates.

The IRS does not make a habit of coddling taxpayers. Even though the requirements related to foreign accounts and assets and the filing of FBARs are relatively new, the IRS expects that individuals with these types of accounts and assets will work to become educated and ensure they are in compliance with IRS requirements. Therefore, claiming non-compliance with FBAR regulations was non-willful based upon a defense of ignorance will likely not fly.

Prosecution argues Ray Nagin's sentence, too lenient

On August 29, 2005, a massive storm surge caused by Hurricane Katrina caused several levees within the New Orleans area to fail. As a result, an entire major metropolitan city along with outlying regions was engulfed in water and completely devastated. In the wake of Katrina, the city's mayor Ray Nagin gained worldwide recognition and admiration as he pleaded for assistance in the rescue and evacuation of thousands of residents who failed or were unable to heed his calls for mandatory evacuation.

More recently, the 58-year-old politician and businessman has faced very different struggles as he was recently sentenced to serve 10 years in federal prison. Included in the list of criminal indictments against Nagin were those related to tax crimes like money laundering. Upon sentencing the former mayor, the judge noted her reasons for departing from sentencing guidelines that, if followed, would have put Nagin behind bars for up to 20 years.

IRS' attempts to regulate independent tax preparers come under fire

We've previously reported about unscrupulous tax preparers who take advantage of clients and commit tax crimes. In an effort to weed out these dubious tax preparers, the Internal Revenue Service recently established a new program called the Annual Filing Season Program. The IRS contends that participation in the program is voluntary. Independent tax preparers who participate will "obtain 18 hours of continuing education," and their names will be included in the IRS' Directory of Federal Tax Return Preparers with Credentials and Select Qualifications, which will appear on the agency's website.

The establishment of the AFSP has become a hot-button issue among independent tax preparers who previously filed a lawsuit against the IRS related to the agency's constitutional ability to establish such a program. Earlier this year, an appellate court sided with the independent tax preparers and ruled the IRS "did not have the legal right to regulate tax preparers. However, despite this ruling, the IRS recently announced the launch of the agency's voluntary AFSP.

Man dodges tax evasion conviction

As U.S. citizens, we are afforded certain freedoms, rights and protections, many of which are outlined in the U.S. Constitution and Bill of Rights. While Americans enjoy many freedoms and rights, citizens must still abide by certain laws, rules and regulations; which aim to keep order and maintain our ability to sustain the freedoms and way of life we enjoy. Laws pertaining to criminal activity are primarily enforced by governmental, federal and state law enforcement agencies.

Thankfully, there are also laws and rules that regulate the agencies and individuals empowered to uphold the law. For example, the Fourth Amendment to the U.S. Constitution protects citizens from unlawful "search" and "seizure”. As a result, federal and law enforcement agencies are required to obtain consent or a search warrant prior to searching and seizing evidence found in an individual's home, vehicle or on their person. It's important to note that, even in cases where search warrants are issued; there are still restrictions and time limits related to the scope and validity of the warrant.

 

Business owners and sole practitioners cautioned against following questionable financial advice

Small business owners and independent practitioners such as dentists and doctors often have complex financial structuring plans. When it comes to finances, the feat of sorting and figuring out personal and business assets and debts can be a complex and arduous process. For these reasons, many small business owners and independent practitioners turn to financial professionals like accountants and tax preparers.

Financial professionals have a fiduciary duty to provide advice and carryout financial actions that are in a client’s best interest. In some cases, however, these individuals devise schemes to help clients retain more assets and avoid paying taxes while the tax professional is paid handsomely for their services.

When it comes to IRS foreign asset matters, ignorance is not a good defense

There's been a lot of mention in the news lately about foreign financial accounts and efforts by the U.S. government to crackdown on would-be tax evaders. Gone are the days when individuals could easily open a foreign Swiss account and just happen to forget that account existed come tax time. Today, the IRS has developed strict guidelines with regard to what types of foreign assets and financial accounts must be declared and subsequently taxed.

Of course, like most IRS tax matters, the guidelines dictating how U.S. holders of foreign accounts and assets must go about complying with federal regulations are confusing and complicated. Given this, it stands to reason that some individuals will fail to file the correct forms or follow IRS procedures.

Why you shouldn't ignore that tax mistake

For individuals who have been at the same one job and owned the same home for years, filing a tax return is fairly simple. However, for individuals who own a business, work multiple jobs, freelance or moved to a new state for a job; tax matters can quickly become complicated and confusing. The more complex an individual's income sources and structure, the more complex things typically become come tax time.

In some cases, an individual may inadvertently fail to file a required form. This tax mistake can occur for a number of reasons. An individual may not receive the paperwork needed to file in time or the paperwork may be sent to an incorrect address. Whatever the case may be, individuals who fail to file or pay their taxes on time would be wise to address and remedy the situation as soon as possible.

STARS dealings still being debated concerning tax consequences

An appeal concerning $400 million in business losses related to transactions engaged in by Wells Fargo & Co. will not be heard by the U.S. Supreme Court. Wells Fargo had hoped to have these losses written off on their tax returns thus entitling them to an $82 million refund. However, one appellate court had ruled that these losses were unrelated to any business or economic purpose outside of an attempt to avoid paying taxes.

Wells Fargo continues to dispute the manner in which the law was enforced by federal officials and thus asked the Supreme Court for a review. From the perspective of Wells Fargo, the structured trust advantaged repackaged securities financial transactions or STARS that the bank marketed were related to legitimate tax planning.

Additional advice on how to effectively communicate with the IRS

In our last blog post we provided some helpful dos and don'ts taxpayers should keep in mind when dealing with the IRS. In this post, we'll continue to explore this topic and discuss ways taxpayers can minimize the frustration and stress of answering IRS requests or dealing with an IRS audit.

When on vacation and attempting to communicate with an individual from France or Spain, one is much more likely to find help or at least a smile when he or she attempts to speak the native language. The same can be true when dealing with IRS officials and employees. While it's important not to come off as a know-it-all or expert, knowing some key phrases and lingo can greatly help in engendering clear communication and in convincing an IRS agent that a taxpayer respects his or her position and authority.

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Robert J. Fedor, Esq., L.L.C.
23550 Center Ridge Road, Suite 107
Westlake, OH 44145

Phone: 440-250-9709
Toll Free: 800-579-0997
Fax: 440-250-9714
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Robert J. Fedor, Esq., L.L.C.
542 S. Dearborn St., Suite 660
Chicago, IL 60605
Phone: 312-836-9096
Toll Free: 800-579-0997
Fax: 312-697-1384
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